Among the pileup of closing fees that seal the sale of a house in Kansas are two injecting millions into the coffers of local government.
Now comes a push in Topeka to abolish the larger of the two fees, one that costs the average Kansas homebuyer $460.
But local government leaders say that would add up to millions in lost revenue they’d have to replace chiefly with higher property taxes.
“It would create a significant tax shift,” Johnson County Commission Chairman Ed Eilert said. “There’s no place else to go.”
The debate is centered on a nearly 100-year-old fee for registering a mortgage at the county courthouse.
Kansas real estate agents and bankers say that when the Legislature returns to Topeka early next year they’ll mount a battle to eliminate the fee. They argue homeowners pay twice for the same service.
Opponents of the existing system say homebuyers should not pay one fee to register the mortgage and a second, smaller fee for the simple act of recording the paperwork with the register of deeds. Both fees are set by state law.
“Not only do you have to pay document recording fees, but the register of deeds turns around and makes you pay this additional tax,” said Luke Bell, lobbyist for the Kansas Association of Realtors.
But counties aren’t ready to give up an estimated $47 million in cash, including about $16 million for Johnson County. Losing the money would blow holes in their budgets that could mean property tax increases.
“The move to eliminate the mortgage registration fee is just another in a long line of negative actions affecting the ability of local governments to provide the services citizens require,” Unified Government spokesman Mike Taylor said in an email.
The debate will unfold at a time when many lawmakers are leery of any tax or fee that might hurt or slow business.
“Any time you can put money back in people’s pockets, it’s a good thing,” said state Sen. Julia Lynn, an Olathe Republican and chair of the Senate Commerce Committee. “That’s a good chunk of change. What does that homeowner get for their mortgage fee?”
The mortgage registration fee was enacted in 1925. Its precise origins are unclear, but it’s believed to have been enacted as a substitute for a property tax on real estate mortgages.
Under the law, homebuyers pay a .26 percent fee on the value of their mortgage when it’s registered at the courthouse, in addition to all document recording fees. The money goes to general operations.
Bell, of the Realtors’ association, said Kansas is one of only nine states with such a fee on the books.
The average mortgage fee in Johnson County is $595. In Wyandotte County, it averages out to $484, and in Leavenworth County it’s $377.
The average mortgage fee statewide would be equal to 21 percent of the average closing costs on a home sale in Kansas, according to Bankrate.com, which tracks consumer interest rates.
The banks say the fee puts them — and consumers — at a disadvantage against federally sponsored farm credit banks that don’t pay state and local taxes, said Doug Wareham, lobbyist for the state banking association.
“It’s a tax,” he said, “that’s not applied fairly.”
Johnson County officials say the registration fee provides a service separate from paying to record a document.
They say the fee covers the cost of reviewing a mortgage and the accompanying lien to ensure both are valid.
“We are securing (a homeowners’) mortgage,” said John Bartolac, Johnson County’s director of records and tax administration.
The mortgage fee is separate from another state law that levies fees for recording documents at the register of deed office such as liens, plats, wills, deeds and mortgages.
The recording fees cost $8 for the first page and $4 for each additional page. The Realtors’ group said the average length of a residential mortgage ranges from 15 to 25 pages, meaning the recording fee could run from $64 to $104 beyond the cost of registering the mortgage.
The battle over the mortgage fees has even divided the Realtors. Eilert was able to persuade local Realtors to support keeping the mortgage registration fee.
“There are only so many ways they can raise money for the county,” said Jeff Carson, advocacy director for the Kansas City Regional Association of Realtors.
Indeed, Johnson County estimates that replacing the fee could mean an increase of $65.26 on a $250,000 house. Wyandotte County would need an increase of $17.25 on a $100,000 home.
“In the end, it’s a huge loss of revenue that will have to be dealt with,” said Melissa Wangemann, legislative services director for the Kansas Association of Counties said. “Either property taxes go up for everyone or the person buying the new house pays the fee.”